Myanmar Postcard - Our top picks for November 2017

Summary: Welcome to the eleventh edition of BLP's monthly Myanmar update in 2017. We have distilled the top news items into this summary 'speed read'.

New Myanmar Companies Law

Last week the Myanmar Parliament approved the new Myanmar Companies Law (the "Companies Law") which is now awaiting the President’s signature to become law. Members of the BLP team were responsible for the drafting of the Companies Law working closely with the Directorate of Investment and Company Administration ("DICA"), the regulator for corporate affairs in Myanmar. The Companies Law modernises the regulatory framework governing how a company is run and introduces more flexible procedures and a detailed governance regime. We welcome inquiries on the impact of the law and will be running client and market briefings on the implications of the new law for business over the coming weeks.

Conflict in northern Rakhine State – an update

In late October 2017, Myanmar and Bangladesh reached an agreement “to halt the outflow of Myanmar residents to Bangladesh” and “to form a joint working group”. This came after a meeting in Nay Pyi Taw attended by Myanmar’s Home Affairs Minister Lieutenant General Kyaw Swe and his Bangladeshi counterpart Asaduzzaman Khan. The two countries signed two agreements covering security and border cooperation. Subsequently on 23 November 2017, Myanmar’s Union Minister for the Office of the State Counsellor U Kyaw Tint Swe and Bangladeshi Foreign Minister Abdul Mahumud Ali signed an agreement in respect of the return of those displaced persons who fled to Bangladesh to escape conflict in Rakhine State.

U.S. Secretary of State Rex Tillerson visited Nay Pyi Taw and met with Senior General Min Hlaing Aung and State Counsellor Daw Aung San Suu Kyi on 15 November 2017. In a joint press conference with the State Counsellor, Mr Tillerson expressed his views that broad-based economic sanctions against the entire country is not something that is advisable at this time.

Things appear to be moving in the right direction finally though details have not yet been provided in respect of the practicalities of returning those displaced. The priority must remain the resettlement of those who have been displaced and economic development of and future investment in the region should be part of any future solutions for one of the most underdeveloped parts of Myanmar.

In considering such investments regard should be given to relevant human rights issues, and all investors in Myanmar can play a role in improving conditions by promoting inclusive development and working environments.

Japan and Singapore rise up the Investment Ranks

Recently, investment in Myanmar from Singapore and Japan has been on the rise. In the first six months of the financial year, Singapore overtook China in terms of foreign direct investment into Myanmar, investing US$1.7 billion.

Increasingly, companies are raising funds in Singapore in order to invest in Myanmar, benefitting from Singaporean investors’ growing interest in Myanmar’s investment opportunities and taking advantage of the memorandum of understanding signed in June between trade agency IE Singapore and the Myanmar Investment Commission (the "MIC"). Recently, Yoma Strategic Holdings Ltd, an affiliate of First Myanmar Investments Co., Ltd. ("FMI"), successfully raised funds on the Singapore stock exchange for further invest in its core real estate, automotive and heavy equipment businesses. Singapore Myanmar Investco similarly raised proceeds of S$7 million in order to expand its retail, auto and construction businesses in Myanmar. Tourism related assets in Myanmar were used by FMI, Yoma and others in a reverse takeover of Catalist-listed SHC Capital Asia Limited. The transaction is expected to complete before the end of the year.

Japan’s level of investment in Myanmar is also on the rise. Japanese investment in the Thilawa Special Economic Zone ("Thilawa SEZ") is particularly notable. Operating from late 2015, Japanese trading houses, Marubeni, Sumitomo and Mitsubishi, and the Japan International Cooperation Agency form part of the joint venture in charge of the development and management of the Thilawa SEZ. Japanese companies continue to invest in the Thiwala SEZ with Suzuki set to open a car manufacturing plant in the zone in 2018 and a five-company joint venture including JFE Steel Corporation and Meranti Steel set to open a steel plant in 2020 aiming at supplying Myanmar’s growing construction industry. Investment from Japan is set to remain robust as the Bank of Japan kept short term interest rates at -0.1% and cash deposits continue to generate negative returns.

BLP has assisted numerous Japanese clients enter Myanmar and we continue to focus on fostering relationships with Japanese investors in Myanmar. At the end of October, in Tokyo Chris Hughes (head of BLP Myanmar) delivered a seminar titled Myanmar Investment Climate Reforms & Market Update alongside Asia Development Bank Institute to over 100 participants, members of JOI. The presentation also included a panel discussion on Myanmar reforms and infrastructure financing. As part of the same trip, members of the BLP team paid visits to a number of Japanese clients and ran seminars on the new Myanmar Companies and the Myanmar Investment Law.

Formation of two new ministries

At the request of President U Htin Kyaw, the Myanmar Parliament has approved the formation of two new ministries, the Ministry of International Cooperation and the Ministry for the Union Government. The request was put forward as part of the ongoing effort to streamline government operations and improve coordination between various Government offices. However commentators have questioned why the government is looking to increase the number of ministries having previously made a concerted effort to reduce their number.

The Ministry for the Union of Government, led by U Thaung Tun, will serve to coordinate the numerous agencies and ministries under the office of the President, whilst the Ministry for International Cooperation, led by U Kyaw Tin, will handle international cooperation in respect of political and economic issues.

Anti-corruption commission

Myanmar’s Parliament has also agreed to President U Htin Kyaw’s proposal to reform and make new appointments to Myanmar’s Anti-Corruption Commission. The formation of the Anti-Corruption Commission in 2014 followed continued demands from Myanmar’s Parliament to take a stronger stance against deep-rooted corruption and was a move seen as critical to democratic reform and a step to increasing international trade. Whilst Myanmar’s standing in international corruption indices has improved greatly in recent years, the country still ranks 136th (out of 176) nations on the latest Transparency International’s Corruption Perception Index and the Anti-Corruption Commission has faced criticism that it lacks the power to tackle high profile individuals accused of corruption. U Aung Kyi, nominated to lead the commission, said this month that ‘reforms [would] need to be undertaken to improve effectiveness’ and that Myanmar’s poor reputation in respect of corruption was ‘harming inflows of foreign investment’.

The MIC’s explanation on the appointment of foreign experts

The MIC issued an explanation and reminder regarding the appointment of foreign experts on 15 November 2017. The explanation only concerned entities operating with a permit issued by the MIC.

In the explanation the MIC reminded investors that the request for the appointment of foreign experts must be made prior to their arrival or within seven working days from the date of arrival into Myanmar. It was further noted that in spite of the fact that the MIC is facilitating such appointments, some companies are employing experts without seeking the MIC’s approval. Investors are also required to notify the MIC of the resignation of such experts.

This explanation from MIC followed the announcement of the new procedures relating to the applications of stay permits and visa extensions by certain classes of foreigners last month.

The appointment of foreigners appears to be an area of focus for the MIC. Members of the BLP team worked closely with the MIC on formulating the Foreign Investment Rules and have the insight and relationship to advise on any Investment Law matters. Please do not hesitate to contact us for further guidance in this area.

Real estate sector update

A draft bill aimed at implementing and supervising the administration of a nationwide property tax has been approved by the Union Government and has been submitted to the the lower house, Pyithu Hluttaw. Further to this, a central supervisory committee will be formed to assess and decide, the rate of tax annual applicable to the sale and lease of land or property.

The key purposes of the bill include (i) preventing real estate monopolies from forming and increasing foreign investment, and (ii) raising the government’s tax revenue through effective collection.

Currently, property taxes are collected by municipal organisations under regional or state government. This favours the formation of real estate monopolies as wealthy individuals or companies may acquire and speculate on multiple properties in various regions. Such monopolies deter foreign investment and exacerbates the situation for less well-off citizens who are unable to afford housing.

(ii) One million low cost apartments to be built

The MIC had in early July announced that low cost and affordable housing was in their top ten sectors prioritised for development. The government has responded with plans to build one million low cost and affordable apartments over a period of 15 years through public and private partnerships. The Department of Urban and Housing Development is in the process of acquiring and clearing land and compensating relevant landowners.

The responsibility of carrying out the building works has been handed to the Myanmar Construction Entrepreneurs Association ("MCEA"), which has branches across Myanmar. They will act on the instructions of regional and state governments in their implementation of projects. The MCEA are currently sourcing long-term financing from Japan, and technical assistance from other international organisations to achieve this. State-owned Singaporean firm Surbana Jurong has signed a memorandum of understanding in March this year to be the lead technical consultant to the MCEA. Its Myanmar subsidiary says that it will “assist MCEA by employing technology that minimizes construction time and cost without compromising on design, safety and functionality.”

To assist potential homeowners, the Construction and Housing Development Bank ("CHDB") has since 2016, provided K10 billion in housing loans to apartment buyers of such low cost housing. The scheme introduced in 2016 requires potential buyer to save 30% of the purchase price as the deposit, with the remaining 70% to be paid within eight years, with an interest rate of 12%. CHDB provides a yearly interest rate of 8.5% on the savings of these potential buyers who are accumulating the requisite funds for the deposit. The loans are also extendable from 15 to 30 years depending on the stability of the borrower’s income.

MIC Notifications

The MIC issued Notification (No. 86/2017) on 16 November 2017 announcing the temporary suspension of the issuance of Permits or Endorsements to new wood-based industries. The MIC will temporarily stop giving permission to new timber businesses with the aim of reducing illegal logging and preserving the country’s forests.

The MIC also issued Notification (No. 87/2017) on 20 November 2017 announcing that 100% export-oriented investments can apply for tax exemptions or reliefs in accordance with section 77(b) of the Myanmar Investment Law 2016.

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